FINANCIAL ACCOUNTING

Impact of Financial Accounting on Market Value

[Institution's Name]Abstract

This research paper explores the topic of financial accounting. It examines the financial statements and financial reporting. Further, it focuses on the impact of recording past transaction on the market value of the firm. Basically, the financial accounting factors that are involved in the determination of the market value of the firm are analyzed.

Table of Content

Abstractii

Introduction1

Discussion2

Financial Statements2

Capital Structure2

Dividend3

Ratios3

Depreciation6

Revaluation of Assets6

Mark-To-Market/Fair Value Accounting6

Stocks7

References9

Impact of Financial Accounting on Market Value

Introduction

Financial reporting provides much needed data for companies to understand their business. Information will vary from company to company depending on the accounting standards they use. Financial accounting statements prepared for external clients, such as shareholders, creditors and audit agencies.

Since financial accounting reports are open to the public, the report is generated in accordance with generally accepted accounting principles or GAAP guidelines. Reports are on time, such as the fiscal year or month. Data generated from the historical evidence from the past and are usually used for making financial and investment (Phillips, 2005, p.10).

Many decisions can be made of financial accounting, because it shows assets such as cash, inventory, equipment and historical value of the land, compared with a market value on the date for the sale of land. Financial accounting focuses on the company's profitability, liquidity, solvency and stability. This information is used by the shareholders, lenders and banks who are interested to invest in a company that allows the company to open new credit and allow the public to evaluate data for decision to purchase securities (Phillips, 2005, p.10).

There are solutions that can be drawn from financial statements for the future direction of the company. Based on this information, the company could make growth decisions by comparing with other companies to help determine the competitiveness of its companies. This will allow them to identify trends and when trends changed. Companies can also gauge their performance against industry averages to find a place where they are in the industry.

Discussion

Financial Statements

Analysis of the financial statements is done to find out the position of the company and its industry. Investors ask their respective brokers to do a thorough financial statement analysis of a company before investing in it. This is essential for the investor so that he knows whether if he is investing in a company which is safe and is working in an industry which will flourish. A company usually issues annual reports which are audited by the auditing firms, though historical transaction may not reflect the true value, but for that purpose firm keep revaluing their firms in order to maintain their market value (Zeitlow, 2007, p.35). Those factors that are responsible for the market value of the firm are discussed further in the paper.

Balance sheet reflects the financial position of the firm. The size of the firm in known by the total assets recorded in the balance sheet. While, the ratio of its business financed by equity or debt is also calculated by balance sheet, which is then used in further calculation for the ...